Monday, November 1, 2010

The SEC - Nothing Has Changed

This morning Dennis Gartman of the The Gartman Letter brought to my, and many other's thankfully, attention to a stomach wrenching case the SEC has brought against some individuals. 

According to Dealbreaker, it seems the SEC has brought charges against 2 lower level rail yard employees of Florida East Coast Industries:

"Gary Griffiths and Cliff Steffes, former employees at Florida East Coast Industries, were charged with tipping their relatives about the pending $3.5 billion acquisition of their company by Fortress Investment Group in May 2007. Four family members who allegedly traded on the information were also charged. The six defendants realized more than $1 million in profits, according to the S.E.C."

Here is how Dennis Gartman described the situation in his morning letter today:

"The SEC is taking Gary Griffiths and Cliff Steffes… two men who worked in the “yard” and not in managements at the railroad… to task for trades they’d done in the stock and options of their company when they noticed a large number of non-company individuals walking around in the “yard” and who were asking a surprising number of questions regarding railcar movements, tonnage carried. The SEC’s claim is that when the men, and their families, bought a rather surprisingly large amount of options on the company’s shares because they had noticed “an unusual number of daytime tours” of the “yard” by “people dressed in business attire” and had assumed that perhaps their company was “in play” that they were in receipt of illegal “insider information” and thus must not only disgorge any profits they’d made, but must pay a massive fine and may even have to serve time in jail. From our perspective, Mr. Griffiths and Mr. Steffes were simply doing excellent “research.” They’d seen something unusual taking place; they made an educated guess as to what the unusual activity meant; they acted upon their guess by buying options on their company’s stock and they profited by the wisdom of their “research.” The SEC thinks otherwise and the SEC is wrong."

Can you believe thugs like this are roaming free? 

Why are Griffiths and Steffes not bound on the rack for heavens sake? 

Why are they not being made a stern example of that this is a land of rules and laws and this sort of thing will not be tolerated, no one is exempt!

Well, readers that is because it isn't.

You need to understand that in this country you can 
  • run a Ponzi scheme for decades (Madoff), 
  • you can loot a company and keep the dough (Angelo Mozillo),
  • you can get below market VIP mortgages in exchange for protection (Chris Dodd), 
  • you can rubber stamp and look the other way as the banks in your jurisdiction rape and pillage the financial system (Geithner) while you get a promotion, 
  • you can trade shares at your whim in in congress via trading loopholes where rules don't apply to you,(pick any senator),
  • you can have secret agreement with judges to rule for your constituents (Wendy Gramm),
yet who will the big tough, no nonsense crew at the SEC go after?

You guessed it..... the little guy. Easy pickens'. Didn't even need 3 guesses with the first 2 not counting did ya!

The SEC acts just like the bully in the playground when you were 10 yrs old. They want nothing to do with anyone their size. They're out for the minnows, the fish, those unable, or unwilling to fight back.

Actually, would you expect anything less from the agency that gave you Harvey Pitt, Chris 'the eunich' Cox and of course Mary 'I stand up for Bernie' Shapiro. These guys at the SEC stand around like Keystone cops during the IPO bribery days of the internet bubble via Frank Quattrrone. They stand around like wax figures at a Madam Tussaud museum as Henry Blodgett issues buys to you and me and sells to the VIP list, yet they have the onions to go after Griffiths and Steffes like they are Bonnie and Clyde.

Has someone magically transported me to Zimbabwe or Sudan with this type of purported law enforcement? Sadly no as I just got my urine sample back and I am sober.  Too bad, as it might all feel better if I wasn't.

It would all be too funny were it not so real, and terrifying for those two poor chaps. All sarcasm aside, I truly am sorry for Mr. Griffiths and Mr. Steffes. for what they did was exactly as Dennis called it above, on the ground research, something Wall St. doesn't do much of any more as steak doesn't pay like sizzle does.  A big firm would do well to hire these 2 as what they did is about as basic homework as could be done by an analyst.

I remember a quote from Peter Lynch in his book One Up on Wall St. where as an analyst he was covering an industry group, I forget which now, but his job took him all over and he travelled there by Greyhound Bus lines. Lynch remarked that Greyhound was the company he knew best as a result. I truly hope Mr. Lynch did not trade in shares or options of Greyhound because with today's new and improved SEC he would be in leg irons for sure.

Note to the SEC, if what Griffiths and Steffes did is illegal, then the simple, common sense driven power of observation is illegal then too, and that makes the the bulk of the population guilty as well. All you AAPL shareholders buying more shares based on customers in the stores be forewarned the SEC is coming for you. All you investors buying CMG stock based on wait times in the restaurant, or based on spotting Ivy Leage financial chemists taking tours of the Chipotle premises, be aware this is non-public information and you will be subject to prosecution. The SEC is completely colorblind to your net worth and your station in life, right?! 

Sure they are!

Yet another example where I look around to see the sane adults and simply do not see any. Maybe I should simply pop a ritalin with a prozac chaser followed by some evening ambien and just get with the scheduled programming.

Congratulations to Dennis Gartman for making an issue of this and bringing it to the attention of his readers, maybe some of them will make their voices heard.

Housekeeping notes:

I was stopped out of my AXP short this morning at $41.81 for a loss of  just over 1.5 pts on 1 unit.

Good speculating to you all and please remember to never forget that "an investor is a speculator who made a mistake and will not admit it".

Open Positions:
Long 1 unit Direxion Large Cap 3X Bear ticker BGZ @ $19.34
Long 2 units Direxion Small Cap 3X Bear ticker TZA @ $60.30
Long 1 unit Direxion Emerging Mkts 3X Bear ticker EDZ @ $60.50
Long 2 units Direxion Financial 3X Bear ticker FAZ @ $19.65
Long 2 units Ultrashort Xinhua China ticker FXP @ $42.45
Long 1 unit Ultrashort Real Estate ticker SRS @ $49.10
Long 2 units Direxion Tech 3X Bear ticker TYP @ $52.60
Long 1 unit ishares Barclays 20yr Treas ticker TLT @ 92.15 stop @ $98.74
Long 2 units U.S. Dollar Bull ticker UUP @ $22.56 stops @ $21.94/$21.44
Long 1 unit Powershares Gold Double Short ticker DZZ @ $9.07 stop @ $8.67
Long 1 unit ishares Barclays 20yr Treas ticker TLT @ 100.33 stop @ $98.17
Short 1 unit Apple ticker AAPL @ $312.25 stop @ $315.37
Short 2 units Caterpillar ticker CAT @ $77.75 stop @ $81.71

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